Retirement Shock : A Little Hand-Holding Goes A Long Way

We're getting older. Not just as individuals, and not just as a country, but as a world. 

A census report projects that between 2010 and 2050, the US will face a rapid growth in its older population. Over the next four decades, the number of Americans aged 65 and older will be more than double what it is now -- and the United States has a smaller share of older persons than many developed countries. 

Watch our video interview with Paul Krugman on retirement:

The EU estimates that by 2030, the EU will have 18 million less children and young people than today. For every two people of working age, there will be one person 65 years or older to take care of. At the global level, the aging population has risen from 8% in 1950 to 11% in 2011, according to the World Economic Forum -- and the most dramatic increase is still ahead. In 2050, 22% of the world's population will be 60 years or older.  

What's the Big Idea?

Global aging will require significant changes in the way our lives are organized, from urban planning to infrastructure, placing major strains on the already-squeezed social safety nets of most countries as well as the benefits programs of private companies.

It's no secret that an aging population will need increased access to healthcare and public transport services. And yet an even more important social question looms: how will the coming wave of people entering their golden -- inactive -- years be supported financially?

"Private retirement, both business and especially individual, retirement accounts are underfunded," says Paul Krugman, Nobel laureate and Professor of Economics and International Affairs at Princeton. But human nature makes it difficult to solve the financial planning crunch on an individual level.

Evidence from behavioral economics shows that it's difficult for people to think rationally about such a seemingly-distant and emotional issue. Time flies, and seniority come upon us faster than we'd imagined. Which is why it's essential that private companies help their employees make smart decisions about saving, says Krugman.

A word of advice: "You can try to provide more security to your employees for their later years, but I think a large part is just making sure that people are well-informed. The notion that everybody knows what's best for himself is really not true when it comes to making decisions about retirement."

Of course, education begins with transparency. Being upfront, clear, and communicative about employees' choices (as well as the likely outcomes based on those choices) costs no money, but it does much to prevent possible crises down the line.

Tell employees exactly what they need to do in order to have enough to live on during their retirement years -- and tell them sooner rather than later. The time to start thinking about these issues is during one's 30's. People should be putting the most money away during their prime earning years.

What's the Significance?

"Put it this way: we used to, as a nation, have private savings rates," says Krugman. "Households put nine or ten percent of their income into savings. In recent years, that has been as low as basically zero. The old ways were right" -- and the increase of individual lifespans due to technological advancements means we should be saving more, not less than ever before. 

The urgency of the situation is heightened by the overall global trend towards aging. The World Economic Forum made "aging" the theme of World Health Day 2012, asking "promise or peril?" It will certainly be a challenge, but as more and more workers retire around the world, employers can play a key role in both helping to avert disaster and ensuring that we're prepared as a society to face the future.

Forward-thinking leaders take note: involvement in employee retirement planning is among the most important advice your company can offer. 

About “Inside Employers’ Minds”

“Inside Employers’ Minds: Confronting Critical Workforce Challenges” features a dedicated website ( which contains a number of resources focused on addressing each key issue.

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